Multipliers

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Last updated 2:46 PM on 4/27/25
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10 Terms

1
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Multiplier Effect

A small change in spending causes a larger change in GDP.

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Autonomous Spending

Spending not caused by a rise in income, such as government projects or corporate investments.

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MPC (Marginal Propensity to Consume)

The fraction of additional income that is spent.

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If MPC = 0.75

You spend $0.75 of every extra $1.

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MPC formula

MPC = change in spending/change in income.

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MPS (Marginal Propensity to Save)

The fraction of additional income that is saved; MPS + MPC = 1.

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MPS formula

MPS = 1 - MPC.

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Expenditure Multiplier

Measures how much GDP changes when autonomous spending changes; calculated as 1/(1-MPC).

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Tax Multiplier

Indicates how GDP changes with tax changes; calculated as -MPC/MPS.

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Final GDP Impact

Calculated by multiplying any multiplier by the autonomous change.